Kenya and Tanzania's shillings are expected to come under pressure in the week ahead on importer demand for dollars, while in Nigeria the naira should stabilise on renewed offshore investor demand for local debt. Kenya's shilling is expected to weaken gradually on importer dollar demand after the central bank sold hard currency twice this week to prop up a battered local currency.
The shilling firmed one percent after the bank sold an unspecified amount of dollars on Monday and Tuesday, lifting the local currency from a five-month low of 87.55/75 to the dollar. "The shilling will continue on a downward swing as end month demand orders begin calling from early next week," said Bank of Africa in a daily note. "However, we expect central bank to continue flexing their muscles to contain the shilling below 88.00 levels."
The shilling was quoted at 86.95/87.15 firmer than last Thursday's close of 87.20/30. Tanzania's shilling is expected to come under pressure as a liquidity squeeze in the money markets eases and demand for dollars from oil importers starts to rise. Traders in the commercial capital Dar es Salaam quoted the shilling at 1,618/1,628 to the dollar on Thursday, from 1,620/1,625 a week ago.
"We expect the shilling to be under pressure as soon as the government starts spending some money at the onset of the new financial year (2013/14) this July," said Patrick Kapella, chief dealer at FNB Bank Tanzania. Uganda's shilling is expected to trade in a tight range with a slight bias for weakening if the central bank injects liquidity to counter a squeeze in the market. Commercial banks in Kampala quoted the currency of east Africa's third-largest economy at 2,584/2,594 to the dollar, stronger than last Thursday's close of 2,595/2,605.
"Scarcity of shillings is persisting in the market even after yesterday's reverse repo so we are anticipating another injection by the central bank," said Sage Muganza Daniel, a trader at Centenary Bank. "If that injection comes through the shilling is likely to lose some ground, otherwise we might trade in the 2,570-2,610 range." The naira is likely to hold steady next week as renewed offshore investor appetite for local debt is expected to boost dollar inflows to Africa's second biggest economy.
"The naira appreciated today because of dollar flows from some offshore investors who bought bonds at this week's debt auction," one dealer said. The local currency was trading at 161.35 to the dollar on the interbank market, firmer than Wednesday's 161.85 close. The kwacha is expected to remain rangebound against the dollar next week as copper prices stabilise.
Commercial banks quoted the currency of Africa's leading copper producer at 5.470 to the dollar, from 5.455 a week ago. "The Bank of Zambia should be fairly pleased with the relative stability of the kwacha. A range of 5.460-5.540 against the dollar is envisaged for the week ahead," one trader said.